permissible deductions for most people.
The finance minister, however, offered a marginal relief of Rs. 2,000 by way of a tax credit to people with incomes between Rs. 2 lakh and Rs. 5 lakh. This will benefit 18 million taxpayers and lead to a revenue loss of Rs. 3,600 crore.
“In a constrained economy, there is little room to raise tax rates or large amounts of additional tax revenues. Equally, there is little room to give away tax revenues. It is time for prudence, restraint and patience,” Chidambaram said in his speech.
He also imposed a 10% surcharge on the super-rich. People with taxable incomes of more than Rs. 1 crore per annum will have to pay this levy. About 42,800 people will be affected.
Section 80C of the Income Tax Act, allows individuals to claim tax benefits of up to Rs. 1 lakh on specified investments and if you fall in the highest tax bracket, you can save up to Rs. 30,000 in taxes.
Currently, there is no tax on people with an annual taxable income of less than Rs. 2 lakh, 10% tax on those with incomes between Rs. 2 lakh and Rs. 5 lakh, 20% on the Rs. 5-10 lakh income slab and 30% for those earning more than Rs. 10 lakh.
“The limit of Rs. 1 lakh has remained unchanged for over more than 5 years. This is disappointing. Given the high rate of inflation over the past few years, the tax deduction limit should have been increased to Rs. 1.5 lakh,” said Rajiv Bajaj, managing director, Bajaj Capital.
Elaborating on his proposal to tax the super-rich, the finance minister said: “When I need to raise resources, who can I go to except those who are well placed in society? I believe there is a little bit of spirit of Azim Premji in every affluent taxpayer and I am confident when I ask relatively affluent taxpayers to bear a small burden for one year they will do so cheerfully.”
Wipro chairman Azim Premji, a billionaire, had recently come out in support of the proposal to impose an additional tax on the super-rich. Prime Minister’s Economic Advisory Council chairman C Rangarajan had proposed the tax following the imposition of a similar in some western countries.
The surcharge will apply to individuals, HUFs, firms and entities with similar tax status, Chidambaram added.